Monitoring vulnerability over time becomes a potential problem area for companies wanting to remain compliant.
Lenders are waking up to the fact that Consumer Duty will not be a ‘one and done’ project.
Unlike other aspects of financial regulation they have had to implement in the past, complying with the latest regulatory developments from the FCA appears to be a challenge all year round.
The reason for this is that consumer circumstances can change from day to day and so can the way in which matters can be handled compliantly with the ‘best outcome’ in mind.
Customers can be pushed into a ‘vulnerable’ definition unexpectedly and at short notice by a complex interplay of factors such as overspending, illness, divorce, redundancy, etc. And from 31 July 2024, when Consumer Rights fully apply, financial services Companies are expected to meet requirements throughout the life cycle of products.
Speaking at a PIMFA conference earlier this year, Lucy Castledine, FCA director of Consumer Investments, reminded companies that an internal governance requirement is that they provide regular board-level reports on whether they have achieved good results. And, she added, boards must challenge executives and push them to deliver and prove good customer outcomes.
Clearly, to do this effectively, comprehensive data monitoring systems are a must for even the smallest companies. All outcomes must be demonstrated with data and management information, in addition to the actions required to address the shortcomings. The FCA sees it as its role to investigate how firms have identified vulnerable and poor outcomes and what actions they have planned and taken as a result.
We know that for some companies, establishing adequate monitoring regimes to satisfactorily ensure consumer rights are respected is proving problematic. There are still many financial companies, often small players, that are lagging far behind in the sophistication of their data. Lack of insight and available expertise makes them particularly vulnerable to regulatory supervision.
Worryingly, the FCA has reported that some firms are merely repackaging existing data in the hope of doing their job, or reporting few or even no vulnerable customers, which is in stark contrast to the FCA’s own Financial Lives research, showing that around half of all British adults are vulnerable. in a way.
As the regulator has indicated, it is not necessarily ‘bad outcomes’ that will lead to punitive measures. a lot of.
The question regulated companies need to ask themselves is this: Do we have an early warning system that anticipates harm by connecting the dots from different data sources? If we don’t already have something that, for example, combines higher cost data with customer engagement levels to find a combination that indicates potential problems, we need to make sure we do.
There are no excuses. The FCA has given the industry a significant break-in period (the final rules and guidance were published in July 2022). Moreover, if they do not have the internal knowledge, third parties can be consulted.
There are a range of plug-and-play data orchestration platforms that can be up and running within days. Over time, such platforms can refine data sources and analytics to optimize compliance (and profitability).
The definition of ‘good outcome’ may be escalated by the FCA over time, so it is essential that there is something that ‘learns’ and collects, filters and analyzes data.
Fortunately, the regulator has stated that the aim is not to trip up companies by tackling technical breaches. It will be beneficial if companies take “reasonable steps to identify and proactively address issues,” even when mistakes are made. As mentioned, the lack of an adequate monitoring regime to identify and take action will lead to punitive measures.
The sector is still coming to terms with the shift in financial regulation from specific and clearly defined requirements to ‘thematic’ regimes, such as ‘good results’, open to interpretation or as some would call it ‘mission creep’. This is undoubtedly more difficult and more susceptible to ‘gold plating’ than the regulations it replaces.
With the FCA giving every indication that it wants to expand regulation to ensure what it considers optimal outcomes in a number of areas, data will become the only way to chart a compliant and profitable course.
David Wylie is commercial director of LendingMetrics